County Beat: State audit of county finances

By E.J. Albright news@barnstablepatriot.com

Friday

Aug 18, 2017 at 12:15 PMAug 18, 2017 at 12:15 PM

The commonwealth auditor's office released the long-in-gestation audit of county finances, confirming that past practices of the county were without proper policies and procedures, and that without them no controls were in place to properly manage them.

The Barnstable County Board of Commissioners reviewed the document Wednesday, and the consensus, as expressed by Chairman Leo Cakounes, was that "there was nothing in the audit that I feel was a surprise." The county has already instituted the recommended policies, procedures, and controls to address some of the issues and will be generating more in the coming weeks and months.

For months, staff from the commonwealth's Office of the State Auditor camped out in an office in the county's headquarters in the Barnstable Superior Court Building, reviewing records primarily covering fiscal years 2014 and 2015. They also reviewed supporting documents related to activities covering that period, and from their review came away with three findings:

First, "Barnstable County did not properly administer the leasing of its properties." All nine properties leased by the county appear to have been executed contrary to state law, the auditor found. "Further, seven tenants occupied County properties with no leases and, according to County records, were not paying any rent to the County," the auditor wrote. "In addition, five of these seven had their utilities, grounds maintenance, information technology (IT) expenses, and parking lot use paid for by the County."

Second, "The County’s process for financing capital projects needed improvement." Despite performing numerous capital projects, the county has not issued bonds for more than two decades. "As a result, many capital projects that the County deemed necessary were not completed,"wrote the auditor. "For example, between July 1, 2013 and June 30, 2015 the County approved $6,543,200 in capital projects, but because it did not secure debt to finance these projects, it was only able to finance $2,352,773 of them. Further, the County’s financial records show a deficit balance of approximately $8 million in its Capital Project Fund, which could negatively affect any future borrowing the County wants to conduct. Finally, by using money from its General Fund to fund capital projects, the County lost the opportunity to invest any excess funding that may have been available to it."

Third, "The County inadequately documented expenditures totaling $229,133." The county budgeted funds to various non-profit organizations as well as made several "non-payroll" expenditures that in the auditor's eyes were not proper. Auditors reviewed 95 non-payroll expenditures totalling $229,133 "and found that the County did not have adequate documentation to substantiate that the expenditures were appropriate and related to County business." Without documentation, "There is a higher-than-acceptable risk that its funds could be misappropriated or expended for unallowable goods or services and that these issues could go undetected."

"The auditors did an extraordinary job," said Cakounes. While there were few if any surprises, the audit represents a slate of work for county officials that Cakounes predicted would be discussed "on a weekly basis."

With regard to the leases, Cakounes pointed out that some, such as to the Cape Light Compact, are no longer an issue because that organization has vacated the property. Others will expire in a year or less, and until that happens, Cakounes recommended nothing be done for now. Other leases, such as the $1 per year lease given to a for-profit assisted living company for property in Pocasset, will require additional research before any action can be taken, Cakounes said.

While the leases have received considerable coverage by local news organizations, Cakounes said the most "devastating news has not received a lot of press." He was referring to the practice of not bonding for capital projects, the so-called "fund deficits" totaling around $7 million. Cakounes indicated that the failure to properly borrow to pay for these projects has put the county's bond rating at risk. County officials will be meeting with its bond rating firm, Standard & Poor's, next week, according to County Administrator Jack Yunits Jr.

"Make no mistake, we took this money from ourselves," Cakounes said. The county paid for capital projects out of its cash flow and various ad hoc reserve accounts, Cakounes said in a later interview. "It's a convoluted and complicated situation," he said. "With this cloud hanging out there, we are really not able to get a decent bond rating."

The third issue raised by the commonwealth's auditor regarding monies spent on not-for-profit organizations and for "non-payroll" expenses was addressed during the most recent budget cycle, Cakounes said. The county set up a special account for grants to non-profits and approved policies and procedures on how the grants would be applied for and distributed.

However, in the followup interview, Cakounes said that a small but unanswered part of the auditor's recommendation, regarding "non-payroll" expenses, still has not been addressed. The auditor found that more than $10,000 in expenses "for various gift cards, food items, and meeting venues were made without evidence of properly approved invoices and purchase orders."